Jetblue Airlines' Success Story|Business Strategy|Case Study|Case Studies

Jetblue Airlines' Success Story

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Case Details:

Case Code : BSTR045
Case Length : 15 Pages
Period : 2003
Organization : JetBlue Airways
Pub Date : 2003
Teaching Note : Available
Countries : USA
Industry : Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"JetBlue has been put together as no other airline has ever been put together before. It has the most capital. It has the best product. So now the question is, can you continue it? And that's what worries me. That's what keeps me up at night. How can we continue what we have started?"

- David Neeleman, Founder and CEO of JetBlue.

"JetBlue will continue to eat out of the major carriers' rice bowls for quite some time. While they struggle to repair their balance sheets and become more liquid and financially flexible, low cost airlines like JetBlue will expand into the vacuum the majors have created."

- Robert Mann, airline analyst and consultant at R.W Mann & Co.

Jetblue Beats the Biggies

In early 2003, JetBlue Airways (JetBlue), the three-year-old no-frills American airline, posted a profit of $ 17.6 million for the first quarter of 2003. In the same period, the American airline industry announced losses of around $2 billion. JetBlue was one of the few bright spots in an industry which has been reeling under the woes of over-capacity and losses for over two years.

The company managed to succeed in a period when big names of the American airline industry like American Airlines, United Airlines, US Airways and others suffered huge losses and were a few steps from bankruptcy. The American airline industry was in a bad state owing to the effects of terrorism, war and economic downturn. The major carriers alone were estimated to have an outstanding debt of over $100 billion, as against a combined stock market value of $13 billion in 2002. Passenger traffic was also falling consistently. In early 2003, the traffic was 17% lower than in the same period of 2002 (which was itself 10% lower than the traffic in early 2001). In this scenario, a number of low cost airlines began to make their presence felt in the industry (Refer Exhibit-I for a note on low-cost airlines in the US).

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Southwest Airlines, the highly successful 30-year-old discounter, was the inspiration for most of the low-cost start-ups. However, not all the start-ups succeeded. The most important cause for failure was the inability of these low-cost airlines to bring about a balance between cost-cutting and quality of service.

The most successful exception to this condition was JetBlue. JetBlue, which was also modeled on the lines of Southwest Airlines, managed to succeed in a depressed and highly competitive industry, because of its innovative approach to business and its efforts in becoming a cost leader by cutting down on unnecessary frills and wasteful expenses. The airline managed to cut costs without compromising on the quality of service. In fact, it provided more amenities than other airlines, including personal television sets for every flyer and comfortable leather seats, creating a feeling of luxury. JetBlue's strategy was to identify and eliminate non-value adding costs and use the money so saved, to provide service of better quality.

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